Sprint is in big trouble—and knows it

For years, industry observers and Wall Street analysts have been warning that Sprint hasn’t been able to correct its flagging performance, and that the company may never recover its footing unless it somehow manages to kick-start significant revenue and subscriber growth.

And, based on the company’s new filing with the FCC, Sprint is well aware of all that.

“Sprint’s standalone future will not be one that allows it to be an effective competitor to Verizon and AT&T on a nationwide basis,” the company wrote in a filing with the FCC. “And though Sprint’s massive cost reductions have stabilized the company’s finances and yielded positive free cash flow for the first time in many years, the company achieved that result only by shrinking the company and reducing network investment to historically low levels. Put simply, Sprint lacks the scale and resources to expand its network capital spending (as required to avoid falling further behind in network quality and to begin deploying 5G network technologies) and continue its aggressive spending (in the form of promotional pricing and other incentives) on customer acquisition.”

Perhaps not surprisingly, Sprint’s dire outlook on its future is contained inside the company’s filing along with T-Mobile urging the FCC to bless a merger between the two companies. Sprint’s argument in the filing is that it will be unable to effectively compete in the future unless regulators allow the company to merge with T-Mobile.

For its part, T-Mobile makes a similar argument in the filing, though the carrier offers a decidedly more optimistic outlook on its fortunes: “T-Mobile, as a standalone company, has had some success but will not be able to continue competing as well without the merger.”

But it is Sprint’s outlook that truly sticks out in the filing—indeed, the company’s assessment of its fortunes is contained under a heading titled “Sprint Faces Serious Challenges for the Future.”

Among Sprint’s challenges:

  • Sprint continues to lose customers “despite Sprint’s aggressive attempts to add subscribers and thereby gain...
  • Scale,” which is “exacerbating its scale disadvantages compared to larger competitors.”
  • Sprint’s LTE network is smaller than those of its rivals, forcing it to engage in “costly” roaming agreements.
  • Within Sprint’s network footprint, “the propagation limitations of its 2.5 GHz spectrum, coupled with an inadequate density of cell sites equipped with 2.5 GHz radios, result in significant coverage gaps in the 2.5 GHz layer.”
  • Sprint is only going to deploy 5G on its 2.5 GHz spectrum, and only in dense urban areas, because it doesn’t have enough low-band spectrum for 5G and because it will be too expensive to deploy 5G on its 2.5 GHz spectrum nationwide. Moreover, Sprint is going to deploy massive MIMO—the carrier’s stepping stone to 5G—in areas that are currently congested, meaning that its 5G network “will not be contiguous.”
  • Sprint continues to suffer from a “negative perception” of its network among Americans—“in fact, Sprint is the only major carrier with a rising churn rate.”
  • Sprint’s finances are challenged, to say the least. “Sprint’s service revenue and ARPU have been declining for at least five years, with total service revenue falling around 25 percent from 2013 to 2018, and postpaid ARPU falling approximately 30 percent. Sprint also has a current net debt of approximately $32 billion and is the most highly leveraged company in the S&P 500,” the carrier wrote.

Sprint’s ominous outlook in its new FCC filing contrasts sharply with the statements the carrier has made during recent quarterly earnings reports. For example: “In the fourth year of our turnaround, Sprint delivered the best financial results in company history as a result of growing our customer base and continuously improving our cost structure, while significantly improving our LTE network and initiating deployment for the first truly mobile 5G network in the U.S,” CEO Marcelo Claure said in May at the release of Sprint’s first-quarter results, and after the operator announced its merger plans with T-Mobile.

Continued Claure on the carrier’s quarterly conference call with analysts: “Our fiscal 2017 results demonstrate, I would say another milestone in our five-year turnaround plan. We delivered customer growth. We delivered profitability and improved network performance and we've done all of those at the same time. We've delivered the highest retail phone net adds in five years. We continue to grow our postpaid customer business and prepaid customer base. We have improved profitability. We've delivered net income for the first time in 11 years. We have our highest operating income in company's history and we have our highest adjusted EBITDA in 11 years,” he said, according to a Seeking Alpha transcript of the event.

Sprint’s outlook in its latest FCC filing adheres far more closely to the outlook provided by MoffettNathanson analysts in May than Claure’s outlook in May: “Absent a merger with T-Mobile, Sprint still doesn’t look sustainable,” the MoffettNathanson analysts wrote following the release of Sprint’s first quarter results.